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Brexit Day: Euro to Pound Sterling Exchange Rate Slumps to New Monthly Low

Euro to Pound Exchange Rate Falls as French Growth Data Disappoints

Britain will be formally leaving the EU later today and the Pound (GBP) is currently advancing, pushing the Euro to Pound Sterling (EUR/GBP) exchange rate to fresh monthly lows. Euro (EUR) demand is being limited by poor French growth stats.

Following last week’s EUR/GBP plunge, this week’s losses have been a little lighter.

Still, unless EUR/GBP rebounds later in the day the pair is on track to see losses once again. EUR/GBP has fallen from 0.8434 to a monthly low of 0.8393 so far this week. The lows seen at the time of writing are the pair’s lowest levels since December.

While the Euro is being weakened by poor Eurozone data today, much of today’s Euro to Pound exchange rate losses are also due to the Pound’s continued bullishness.

Euro (EUR) Exchange Rate Demand Limited as French Growth Falls Short

While the Pound’s movement in recent sessions has been the primary cause of EUR/GBP movement, today’s Eurozone data has put fresh pressure on the Euro as well.

This morning saw the publication of Germany’s December retail sales and France’s Q4 growth projections stats, both of which came in well below market expectations.

German retail sales contracted at a shocking -3.3% month-on-month, while French growth unexpectedly contracted at -0.1% quarter-on-quarter.

Despite this data though, the Euro is faring a little better than other major currencies. According to Derek Halpenny from MUFG, there are signs that French growth could pick up again in Q1 2020:

‘France confirmed this morning that the economy contracted in Q4 – real GDP fell 0.1% Q/Q, well below the consensus +0.2%. The good news however is that the downside surprise reflected an inventory liquidation – excluding inventories real GDP would have expanded by 0.3% Q/Q. So we may see that growth come back in Q1.’

Pound (GBP) Exchange Rates Climbing Ahead of Brexit

Investors continued to pour into the Pound this morning, despite the broad uncertainty ahead in the British currency’s outlook.

Britain will be formally leaving the EU today, after which a 2020 of UK-EU negotiations will begin. It is still unclear how Britain and the EU’s relationship will look at the end of the year.

For now though, a combination of Bank of England (BoE) relief and anticipation for the next phase of Brexit is keeping Sterling gaining.

Yesterday saw the Bank of England avoid a speculated UK interest rate cut. While the bank did cut its growth forecasts it was overall less dovish than markets expected, which is keeping the Pound appealing.

Euro to Pound (EUR/GBP) Exchange Rate Anticipates Next Stage of Brexit

Britain will finally leave the EU today, but for Britain’s relationship with the EU that is only the end of one major phase.

The transition period, designed to allow time for negotiation to help Britain adjust outside of the EU without a cliff edge scenario, will last through 2020.

Negotiations over the future relationship will begin in the coming months, but as the UK government has outlawed the potential of a transition period extension markets are anxious that a deal might not be agreed in time.

The threat of a hard Brexit at the end of the year is likely to return to market focus and could influence Pound movement again.

As for data, next week’s Eurozone and UK data has the potential to influence currency outlooks as well.

If January’s final Eurozone and UK PMIs meet or beat expectations, they could boost hopes of more resilient economic activity in 2020.

If next Friday’s German trade balance and industrial production stats beat forecasts this could also boost the Euro to Pound (EUR/GBP) exchange rate.